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Compensatory Vs. Punitive Damages: What’s The Difference?

Compensatory Vs. Punitive Damages: What’s The Difference? 

Unlawful personal injuries, whether they are due to car accidents or not deserve to be compensated as long as the victim proves negligence or intentional causes. There are various types of damages a person who is injured is entitled to, examples being compensatory damages (economic and non-economic), and punitive damages. 

Economic and non-economic damages are also known as special and general damages and they are collectively also called compensatory damages. Now the question is, what are the differences between compensatory and punitive damages?

Who qualifies for punitive damages, and when are you entitled to compensatory damages? Do all personal injuries qualify you for compensation claims? How can a car accident attorney or any personal injury lawyer help you raise your claim settlement? Alright, let’s go!

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Compensatory damages

According to Investopedia, compensatory damages are any amounts of money awarded to a person who is unlawfully injured to compensate for his injuries, damages, and any other financial losses.

They are many types of personal injuries and these largely include physical injuries like whiplash, bone fractures, spinal injuries, back injuries, birth injuries, damage from a product or medicine, emotional stress, and many others. 

According to super lawyers,  Below are 5 common causes of personal injuries.

1. Car accidents/automobile crashes. From various reports, it is estimated that automobile accidents account for more than 57% of all personal injury cases reported in the USA.

2. Slip and fall accidents. If you tripped, slipped, and fell in the store or any other premises and you think the owner is liable, then you might be entitled to compensation. 

According to Adam S Kutner’s personal injury lawyers, the number of victims in the USA who visit emergency clinics due to slip and fall accidents is close to 1 million every year. Doing simple math will show you that at least 2000 people each day visit hospitals due to slip and fall injuries

3. Workplace injuries. According to workplace injury sources6 workers are injured on the job after every second. This adds up to 12,900 injuries per day, or 90,400 bodily injuries per week, or more than 7 million personal injuries in the USA every year.

4. Dog bites. According to American Veterinary Medical Association,  at least more than 4.5 million people in the USA suffer from Dog bites each year. According to CDC, it is estimated that at least 800,000 people are treated for dog bites in the USA, of which at least half of those bitten are children.

5. Defective products. Defective product lawsuits arise from the facts that items on the market such as medicine, a tire, or any food products are not safe for human use. If you think you have been harmed in any way by any item you purchased, you could also be entitled to a compensation claim.

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What are the two types of compensatory damages?

People who are negligently or unlawfully injured are entitled to 3 types of compensatory damages. These include the following. 

1. Economic or special /actual damages. These are monetary damages that are received by personal injury victims to directly compensate for any expenses that are directly related to the bodily injuries sustained in a car accident or any other causes.

These damages are required to reimburse any out-of-pocket expenses you incurred and also to compensate your lost earnings. These damages include medical bills, lost salary, lost income, lost potential to earn, transport costs, home or car adjustment costs and so many others. 

The jury or judge will award you these damages only if you can prove you incurred them. So, I strongly advise you to seek medical treatment immediately after suffering injuries, and keep safely all receipts and other invoices of any penny you spent while injured.

2. Non-economic or general damages. These are damages an injured person receives due to the effects of the injuries suffered. You can not assign a dollar value to these damages and so you may need a smart personal injury lawyer to prove to the jury of your injuries. 

Examples of general damages or non-economic damages an injured person is entitled to are pain and suffering, disability damages, mental anguish, post-traumatic stress disorder, loss of enjoyment in life, loss of consortium, loss of opportunities and so many others. 

3. Property damages. If you suffered injuries due to a car accident, there is a likelihood your car is damaged too. The at-fault driver in addition to being liable for your injuries, he/she should also compensate for any property lost or damaged. He or she should help repair or replace your totaled car.

Who pays compensatory damages?

This a very tough question considering the fact that each state or country has different personal injury laws. Who pays for compensatory damages also depends on the cause of your injuries. 

In simple terms, most states will ask the at-fault party to pay damages to the claimant/victim. This is because, according to personal injury laws, no person has a right to injure another. But, they are so many things that creep in especially for automobile accident-related injuries.

For instance, in states where a contributory negligence system is followed, the injured person won’t receive any dime if it is established that the client shares responsibility for the cause of his/her injuries.

 For instance, the car accident in which the claimant was injured was because the other driver run a red light, but also the claimant was overspeeding. In such a case, the claimant won’t get any compensation.

In other circumstances, the claimant gets paid but his/her final settlement will be reduced by the degree of shared blame. Consider the above example. If the jury found that the driver who ran a red light was 80% at fault, while the other driver that was overspeeding was 20% at-fault, the jury only awards the driver with the lowest blame. 

The driver who was overspeeding gets a payout but his final settlement will be reduced by 20%. So the driver then ran the red light, won’t pay the whole 100% verdict. He will only pay 80% of the verdict. This is why you need an experienced car accident attorney, right?

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How to calculate compensatory damages?

Calculating compensatory damages is straightforward for only economic or special damages. Calculating non-economic or general damages is tough and is left to the jurors and judges to determine it depending on the circumstances of the accidents. 

For special or economic damages, just compile and add up what is stated in your receipts and invoices. Here is an example of how to calculate special or economic damages. 

Assume the following scenario

Medical expenses (current and future) = $50,000

Lost salary = $10,000

Lost income from businesses = $20,000

transport costs and other accident-related expenses = $20,000

Total economic or special damages = $50,000 + 10,000 + $20,000 + $20,000 

Final economic or special damages = $100,000. 

Calculating non-economic or general damages is a tough one and many formulas are used by different states. Here are some of the 2 formulas used to calculate your general, or non-economic damages. 

1. Estimation using the percentage of your medical expenses. Some jurors or judges will use what is awarded as your medical bills to compute how much your general damages are worth. 

They use multiplier numbers from 1.5 to 5, where each number references how severe was the accident or injuries. In severe injuries, the multiplier number will be 5, while 1.5 might be assigned to minor personal injuries.

Here is an example of how general damages or non-economic damages are computed using a multiplier number. Let us use the above example already given. 

Medical expenses (past, current, and future ) = $50,000

If the person sustained major or severe injuries, he/she could be awarded 5 x $50,000 = $250,000. 

If the injuries are minor, the equation becomes 1.5 X $50,000 

General or non-econmic damages = 1.5 x $50,000 = $75,000.

The second way of computing general/economic damages. 

Rather than guessing what you are entitled to, attorneys, judges, and jurors can use compensation ranges referenced at the judicial college to compute how much compensation would be awarded as your general damages.

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Compensatory vs consequential damages

The differences between Compensatory and consequential damages are kind of confusing especially if applicable to different business perspectives.  

As far as personal injuries are concerned, compensatory damages fall under consequence personal injury damages, making the term broader. Consequential personal injury damages as opposed to compensatory damages do not necessarily arise from the negligence of the at-fault person rather than the presence of personal injuries.

To be more precise, consequential damages are closer in similarity to special damages awarded to the injured person. In fact, some people use the term consequential damages to refer to personal injury special damages like medical bills, lost income, lost earnings, and others.

Punitive damages examples

 If it is proved that the at-fault party acted outrageously, was intentional acts, or showed the highest degree of negligence, the jury could also award you punitive damages. But, does every injured person qualify for these damages? read on!

Punitive damages are awarded by the jury or judges just to punish the defendant due to his/her stupidly unlawful acts. For instance, if a driver under the influence of alcohol (DUI) overruns the red light and severely injures you, most likely you will be awarded punitive damages.

Compensatory vs punitive damages taxation

Guys, we all know that every citizen is mandated to pay taxes. We are supposed to pay taxes on every income or profit we make from our businesses and our wages/salaries. 

If the government thinks you earned money from the damages awarded to you, then you are most likely to be taxed. For instance, everybody pays taxes on the salary earned and income from personal businesses. 

This means some components of your personal damages are also taxed! but which ones? here we go!

Personal injury damages constitute contributory damages (special and general damages) and punitive damages. Components of special damages (economic damages) like lost income, potential to earn, and lost wages are all taxed because, in normal circumstances, you would have paid taxes on those items.

Medical bills are not taxable because they are meant to reimburse what you already paid.

Also, some components of general damages are taxable like emotional distress. If emotional distress is directly related to your injuries, you won’t pay taxes. For instance, if you claim on behalf of a child, the emotional damages awarded will be taxable.

Having said that, punitive damages are taxable! This is because punitive damages are not compensatory. They are only awarded just to punish the at-fault person. 

As you can see guys, both punitive and compensatory personal injury damages are taxable. The only difference is that certain components of compensatory damages like medical bills, mental anguish, loss of consortiums, and many others are not taxable.

Cases where punitive damages were awarded

Punitive damages are awarded if the jury or judge thinks the defendant’s acts exhibit the highest degree of recklessness or maliciousness. Here are a few cases where the plaintiff has a chance of winning punitive damages. 

1. If police officers use excessive force while arresting a person such that they cause unlawful injuries. I have seen many plaintiffs win punitive damages after suing police officers. 

2. If a driver intentionally crashes into your car intending to harm you. Such intentional acts once discovered and confirmed might earn you extra punitive damages.

3. DUI/DWI cases. Most driving under the influence cases ends up awarding the plaintiff punitive damages.

4. Someone punched you or hit you on the head intending to harm or kill you. 

5. Some medical malpractice cases.

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How are punitive damages calculated?

There is no straight formula designed to calculate punitive damages but jurors and judges have over time adopted simple ways to determine the maximum amount awarded in personal injury cases. 

The maximum punitive damages you will likely receive are calculated by multiplying a certain number by your compensatory damages (both special and general damages added together)

Here is an example of how punitive damages are calculated. 

Assume the following scenario. 

Special damages awarded = $100,000

General damages = $200,000 

Total compensatory damages = special damages + general damages

Total compensatory damages = $100,000 + $200,000 = $300,000.

punitive damages = (a number from 1-4) x compensatory damages. 

In this example;

Minimum punitive damages = 1 x $300,000 = $300,000

Maximum punitive damages = 4 x $300,000 = $1, 200,000. 

From the above example, the cap for punitive damages is 4 times the compensatory damages awarded. In this example, the juror or judge can not award more than $1,200,000 as punitive damages. 

However, personal injuries vary from one state to another. There are some states in the USA that permits jurors to award punitive damages beyond 4 times compensatory damages.

Who pays punitive damages?

Punitive damages are awarded to the plaintiff as a punishment to the defendant. This means that punitive damages are paid by the defendant from their own pockets or through his/her insurance company.

Some insurance companies may end up punishing you severely by suspending your policy, or hiking your insurance premiums if it is declared you should pay punitive damages. 

Also, most likely your car insurance coverage policy is not high enough to cover punitive damages, in this case, you will pay from your own pockets.

Summary: Compensatory Vs. Punitive Damages: What’s The Difference? 

Compensatory damages are awarded to personal injury victims to compensate for their losses and their pain and suffering, whereas, punitive damages are additional damages awarded just to punish the defendant.

Not every personal injury case is entitled to punitive damages but compensatory damages are guaranteed as long as the complainant can provide clear and convincing pieces of evidence to the jurors or judges. 

In most states, punitive damages are capped at an amount that is 4 times the compensatory damages.